As you know, folks, today was the all-important “Fed Day” – and it did not disappoint. In short, the Fed all but guaranteed that today’s 25-basis-point rate hike will be its last. 

And we think the Fed may have just kickstarted the next leg higher in the 2023 stock market rally. 

The committee’s statement (issued at 2 p.m. EST) read very similarly to its March statement, but very importantly, it omitted the line about “additional policy firming” being appropriate to attain a sufficiently restrictive policy stance. 

Remember: Throughout 2022 and into early 2023, that line used to relay that “more rate hikes” were necessary to control runaway inflation. In March, it changed to “additional policy firming.” Now it’s entirely gone. 

This captures the dovish shift in the Fed’s policy stance. It’s evolved from, “we’re definitely hiking rates,” to, “we’ll likely keep hiking rates,” to, “we’re done hiking rates.” 

Fed Board Chair Jerome Powell confirmed as much in the press conference. 

His prepared remarks were pretty basic. But the first question he was asked in the Q&A section was about that omitted line and whether it meant the Fed would pause its rate-hiking campaign. He said that the central bank didn’t pause today but that the removal of the “additional policy firming” line from the statement is “meaningful.” 

A Fed pause in June is up next. 

What do Fed pauses always spark? Stock market rallies. 

The path forward will remain choppy and volatile. But the Fed communication we heard today should give stocks the firepower they need to push significantly higher into and beyond the summer.

The Final Word on the Fed’s Rate Hike

Overall, following today’s rate-hike announcement and Fed press conference, we remain highly confident in our “buy-the-dip” strategy.

The Fed can’t come out and explicitly say that it will pause its rate-hiking campaign in June. But it did everything it could to strongly signal that a pause is coming. 

Indeed, today’s press release read exactly like it did back in June 2006, when the central bank executed the last of 17 consecutive rate hikes and then paused in its next meeting. 

Guess what the stock market did from June 2006 to October 2007?

The S&P 500 rallied more than 20%. The Nasdaq Composite soared more than 30%. 

There’s a lot of noise in the stock market right now. Block it out. Keep the big picture in mind. 

A Fed pause is coming – and Fed pauses always spark stock market rallies. 

Stay bullish, my friends.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.